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by Finage at April 21, 2021 4 MIN READ
Forex
The year 2021 has been a year of unprecedented events for the whole world and profoundly affecting the whole life order of people. A rare pandemic in a century emerged in Wuhan, China, and spread all over the world. Millions of people contracted coronavirus and died. Of course, an event that affected the world so deeply also had an impact on the financial markets.
As humanity continues to live in the shadow of all this in the second quarter of 2021, a series of important developments continue to be experienced that guide the foreign exchange market conditions. In addition to the measures taken by countries for the coronavirus, many factors continue to drive markets, including geopolitical risk and oil prices. In our blog post, we will examine what are the economic trends that affect the exchange of currency.
Contrasting movements in the US dollar and euro
Under the administration of the new President Biden, America has a plan to vaccinate about 200 million people at the end of April, and accordingly, many people are vaccinated every day, regardless of age or priority. Thanks to the rapid progress in this vaccination process, which is one of the biggest measures against the corona virus, the US dollar began to appreciate rapidly against G10 currencies. The EUR / USD parity fell to 1.18 for the first time since November 2020 at the end of March, thanks to the US dollar, which had the opportunity to increase its value relatively more due to the decline of the euro.
In addition to America's pace of vaccination, vaccination efforts in Europe have slowed down due to the European Union's inability to properly manage vaccination programs, lack of coordination and join to the vaccination wars. This led to an increase in the fragility of the economy in the face of the virus and accelerated the euro's depreciation.
Rapid vaccination practice strengthens the GBP
Britain, which left the European Union, vaccinated more than 30 million citizens with its first vaccinations. This figure is almost half of the country's population. After the vaccination procedures, UK started to relax restrictions in order to further improve the course of the country's economy. Thanks to the decreasing restrictions and the mobilization of the economy, the GBP / USD rose from 1.37 to 1.39, while the GBP / EUR parity rose from 1.16 to 1.18. In addition, the Pound will benefit from the new financial service cooperation announcement that will `` set the framework for voluntary regulatory cooperation '', which will enable it to gain value.
Europe's Poor Vaccination Management Will Prevent EU Economy From Recovery
Due to the rapidly increasing Covid cases in the European continent due to the third wave, EU member countries continue to increase restrictions in order to reduce the spread of the virus. The recovery of the economy is slowing due to the ever-escalating and prolonged restrictions, and it seems that this will have more severe consequences on the euro in the medium and long term.
The slow pace of vaccination and the uncertainty brought about by local governments' lack of explanation also make Europe's recovery seem unlikely in the short term.
Geopolitical risks seem much more in currencies
In the modern world, trade has largely had a common economic policy since the 1980s, and the free trade pledge prevailed. However, due to the nationalist politicians who have recently taken over the administration of the countries, changes have started in the common economic policy.
Foreign exchange investors are not affected by political developments themselves, but by their economic effects. For example, the foreign exchange markets have experienced great fluctuations as the former US president Donald Trump entered into a trade war with China.
Recently, suspicious parties against Europe have started to get stronger. Especially Italy, Hungary and Poland are the leading ones. Among other countries, Brazil, Mexico and India, which have populist power, pose a problem for foreign exchange investors. Because the reactions of populist governments to crises are quite unpredictable, their effects on the currency are also unpredictable. As a result, in places where populism increases, geopolitical risks for currencies also increase in direct proportion.
Emerging markets are underperforming
The fluctuations in the US dollar affect the markets of developing countries more than America. The increase in the value of the dollar directly affected the emerging money markets and currencies. The MSCI emerging markets index fell 0.2% to the lowest in three weeks. The Turkish lira decreased from 0.14 to 0.12. The Russian ruble has rapid decreases and rises against the dollar against changes in oil prices. The situation in Brazil is also very complicated. The currency is highly volatile due to the Covid management that Brazil has not yet been able to regulate and different external factors.
Currencies of developing countries are generally declining due to the increase in dollar demand and the economic recovery in the EU longer and slower than predicted.
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